Crypto investors feeling the sting of honeypot scams
Honeypots - A bed mate to the Rugpull: a trap so simple, yet devastating and regular within the cryptocurrency world.
Late December 2021 saw a catastrophically effective Honeypot scam rock the crypto space. A token named METAMASK ($MASK) was created by nefarious developers with the sole aim of scamming as many investors as possible.
The developers behind $MASK managed to dupe unsuspecting investors into believing they were investing in a legitimate project by injecting code into popular trading and tracking app DEXTools to display a message confirming the legitimacy of the token. In reality, this was the set-up for a scam of huge proportions. As investors continued to trade the token, the trap was waiting to be sprung. It had been written into the smart contract that once the liquidity had reached a threshold of around $1 Million, the ability to sell the token would be revoked. The threshold was hit and the smart contract code kicked in.
This created the perfect storm the rogue developers had dreamt of: at a glance the chart looked inviting with high trading volume of both buys and sells followed by an exponential rise as investors were buying in, but now unable to sell. The liquidity grew and as the murmurs of foul play grew louder the developers performed a Rugpull; removing the liquidity and disappearing with investor funds. By the time the scam was complete $1.8 Million had made its way to the developers and the holders of $MASK had nothing but worthless tokens and unanswered questions.
Clever coding and the psychology of FOMO mean that most Honeypots do not have to go to these lengths to succeed. It is being reported with alarming regularity that a newly launched token with an inviting chart has been, in fact, a Honeypot scam. Due to the inability of the layman to decipher a cryptocurrency smart contract and spot these lines of code, it is only at the point of failed attempts to sell their tokens that an investor would realise they had been caught by a Honeypot, and the inevitable Rugpull would follow as the developers remove their ill-gotten gains.
Any reputable smart contract audit would flag the danger of a Honeypot to an investor, along with tools such as Verify Lens (launching Quarter 1, 2022), which will advise whether it is possible to buy and sell a cryptocurrency. These two simple checks are vital in the fight against scammers, and the protection of investor funds.
